The Ukrainian authorities have formulated “a set of principles that would guide a possible resolution of systemic banks”, the IMF added, triggering a wave of speculations over the fate of battered PrivatBank, the country’s largest lender by assets owned by Ukrainian oligarchs Ihor Kolomoisky and Hennady Boholyubov.
According to the Kyiv-based brokerage Concorde Capital, this point is “an indirect reference” to the troubles facing PrivaBank, which is one of three banks qualified by the NBU as systemic, besides the two state banks – Oschadbank and Ukreximbank. “The nationalisation risk raises questions about what the government would do with the holders of PrivatBank’s Eurobonds,” Concorde wrote in a research note on October 5.
According to the IMF’s report, a decision on state participation in the recapitalisation of a problem systemic bank will be made on the basis of a technical report prepared by the NBU that assesses inter alia the bank’s capital needs and viability, with the aim to avoid losses to the state.
“Public funds will be injected only after shareholders have been completely diluted and non-deposit unsecured creditors and related deposits are bailed in,” the document reads. ”In case a bank is nationalised, the Ministry of Finance will hire a well-known international firm to run the bank with a commercial business perspective. Moreover, international best practice will be followed and all legal means pursued to ensure that the state secures from former owners the recovery of all the loans related to them in a timely manner.”
Previously, PrivatBank had since secured an agreement with the NBU to entirely repay its refinancing loans, now valued at the hryvnia equivalent of almost $1.2bn, by August 2017.
According to the agreement, PrivatBank is bound to the following requirements: to further increase its share capital; repossess collateral by April 1, 2016; gradually decrease the share of loans issued to related parties and insiders at the bank; obtain additional collateral for a significant part of loans by September 1, 2016; gradually repay overdue principal and interest on the NBU refinancing loans by August 2017; and provide additional collateral for the NBU’s refinancing loans in the form required by the regulator. In addition, oligarch Kolomoisky provided a personal guarantee confirming the lender’s ability to follow the restructuring plan.
PrivatBank’s CAR is 11%, just above the central bank’s threshold of 10%, but its related-party loans remain a source of concern. On October 5, the Wall Street Journal wrote that PrivatBank’s loans to related parties are believed to account for at least 40% of its total loan book, which could threaten the stability of the lender if those parties run into financial problems.
However, PrivatBank said in a statement e-mailed to bne IntellinNews the same day that the ratio of maximum credit exposure to related parties compared with its regulatory capital reached 29.29% as of September 1, according to the NBU’s new methodology.
The new methodology for calculating the ratio of a maximum credit exposure to related parties was approved by the NBU board in June 2015. Due to changes in the methodology, the ratio increased to its peak of 63.72% in the Ukrainan banking sector as of December 1, 2015, but gradually fell thereafter.
Meanwhile, a Kyiv-based source with knowledge of the matter told bne IntelliNews that some of Ukraine’s Western backers insist on splitting off the bank with the aim to reduce PrivatBank’s dominant position in some banking segments. Specifically, PrivatBank accounts for around a third of Ukraine’s private deposits and more than half of the country’s payment cards.